Economic Impact Airports Have to the Communities They Serve

While this is not a story about California Airports, it is an interesting study about the effects that 9/11 had on a group various smaller airports. Of interest is the finiancial amount associated with the loss of airline service to the communities which were included in the study. Take that idea one step further to include the impact of closing various General Aviation airports in California has had on the communities they reside in and the figure would no doubt be huge. Tuesday, April 18, 2006 Small Airports Adjust To Lower Traffic Regional Aviation News

Small airports are surviving by finding new revenue streams to make up for the loss of traffic and flights as the commercial aviation system continues to evolve. From investing $60 million in longer runways to finding new tenants and developing incubator and industrial sites, many airports are struggling to keep from falling off the national air transportation system map.

Three eastern airports – Salisbury Wicomico, Hagerstown and Lynchburg – have seen traffic erode over the last decade, although Salisbury and Lynchburg are recovering. As with the rest of the industry, 9/11 remains the benchmark for the low point in their traffic. Airports that once received several flights per day, connecting passengers to multiple hubs, now have only a few flights a day to a single hub. Hubs over which passengers once connected have been replaced by other hubs, exacerbating the toll that decisions made in the corporate offices of the nation’s legacy carriers take on local communities.

University of Tennessee Professor Jon Lane Smith, who is conducting an economic impact study on what small airports contribute to their local economies, found that only 72 of the 229 non-hub airports involved in the study contribute $14.3 billion in direct, indirect and induced economic activity and nearly $5 billion in payroll. Consequently, it can be easily inferred that the losses prompted by the changing airline market, coupled with the impact of 9/11, have meant the loss of billions of dollars in economic activity for these communities. (RAN, April 3, 2006)

Salisbury, Md., is doing better than most, according to Bob Bryant, who heads the facility as well as the Community Air Service Coalition that commissioned Smith’s study. “In the late 1990s, USAirways [through its regional partner] was the sole carrier here,” said Bryant. “It was in the late 1980s that we last had other carriers serving us. In the late ’90s we had 13 departures per day with service to Baltimore (BWI), Philadelphia (PHL) and Washington National (DCA). After 9/11 that dropped to five a day to PHL. Now we are at eight per day – six to PHL and two to Charlotte, N.C. They are all served by the Havilland Dash 8s operated by USAirways Express Piedmont Airlines. So, we are thrilled to have this level of service.”

The airport is only about 10% below its pre-9/11 levels and load factors are higher than they were when it had its 13 daily departures. With high load factors come higher yield, making Salisbury a good market for the carrier. Bryant characterized the Charlotte traffic as largely origin and destination.

Bryant discussed the mechanisms airports are using today to cope with the loss of revenues associated with the cutback of service. “We used to be funded by landing fees, fuel flowage and hangar rental,” he said. “Now, a lot of airports are developing non-aeronautical revenue streams on the airport property, but that is easier for some than for others. We refurbished an old terminal building, turning it into a small business incubator with a small community development block grant. Other facilities have been turned into aviation business centers. Airports today have to diversify their revenue streams.”

While the advent of the single level of safety constitutes a huge cost barrier to the entry of new carriers to replace the lost service, Bryant sees the financial stabilization of the airline industry itself as more important at the moment, especially with fuel prices escalating. He sees the continuation of the EAS and small community development block grant programs as critical for many non-hub airports.

Local governments, which often include airports in their mandates, are not in a position to subsidize airports. “Here in Wicomico County, they have three main areas of concern – public safety, public health and public education,” noted Bryant, who added it is the same everywhere. “After that everything else really becomes discretionary. It is our job to convince our leaders that airports are an economic engine that is vitally important. There are a lot of communities that lost all air service since 9/11 and they are now struggling to get it back. Had the support been there, perhaps they would not have lost it in the first place.”

For Lynchburg, Va., diversification is also the name of the survival game, according to Airport Director Mark Courtney, who understands that the continued erosion of service is all based on the economics of the high volume, low-fare business model that leaves small communities largely out of the picture. “We rely on an air transportation system that evolved into hub-and- spoke systems feeding passengers from the smaller cities,” he said. “Unfortunately, with the continued pressure of low-cost carriers which require the majors to match their pricing structure, it has been devastating for smaller communities.”

Lynchburg had 19 daily departures prior to 9/11 and it is now down to eight. In 2000, it had 161,000 passengers passing through its doors annually and bottomed out in 2003 at 95,932. It continued to recover in 2005 when it served 128,284 passengers. He was projecting further increases this year but with the fare increases and other factors he is now hoping to maintain flat traffic levels for this year. Historically, this community served between 180,000 and 190,000 passengers per year with three airlines. It has continued to grow economically but still does not have anywhere near the capacity it needs.

“However,” said Courtney, “we now have larger aircraft and the quality of service is better.” The area lost its United Express connection to Dulles International Airport (IAD) as well as its connections to Pittsburgh (PIT) when USAirways downsized and eliminated PIT as a hub. But it now has Delta’s regional jet service operated by Atlantic Southeast Airlines (ATL) three times daily to Atlanta as well as Piedmont’s Dash 8 service to Charlotte five times daily.

“The quality of service is a good thing but we are really struggling with the rising fares,” he said. “USAirways does not match Delta fares, especially leisure fares, so we have a shortage of leisure fares in an already underserved market. It is not just a matter of lower fares. Even when we have low fares, there are not enough seats available in our market. We are 150 seats below what the market can support. On top of that, USAirways has fare sales in Roanoke, which is only an hour and a half from here. So we are competing against Roanoke. People are more willing to drive to get the super low fares and be ticketed on a non-stop flight. It is almost an issue of fairness. The carriers are supposed to serve all classes of passengers.”

The lack of low fares is reflected in load factors. Courtney noted that Delta’s load factors are 80.2% out of Lynchburg while USAirways is only 43.6%. “It is their prerogative and they are concentrating on the business traveler,” he said. “There is a trend away from the Saturday-night-stay requirement for lower fares and now they are bringing down the ridiculously high business fare, so revenue wise are doing very well. That can be a business model in and of itself. That is why we are actively trying to recruit back the United Express service to Dulles. We have great potential to fill more airline seats and we need a northern hub.”

While the airline is impressed with Lynchburg, no decisions have been made. “It is hard,” he said. “The smaller city has less clout and it doesn’t have the passenger volume to generate higher ticket sales and get the attention of other carriers.” Raleigh, N.C., is 2.5 hours away by car and IAD is three hours.

As with Salisbury, Lynchburg has diversified. “We’ve directed our business model to develop the general aviation side of the business,” he said. “We are using our facilities better and have attracted a second FBO to the field. We’ve built T-hangers and now have the state police medi-flights as a new tenant. We are activity recruiting more GA tenants such as Liberty University, which uses the field for flight training.”

Hagerstown, MD, is perhaps in the worst shape of the three non-hub airports. However, it is betting big by investing $60 million dollars to turn its 5,500-foot runway into a 7,000-foot runway complete with two 1,000-foot overruns. It is also incorporating better navaids into the improvements. “Keeping up with the Joneses is very, very expensive,” said Business Development Manager Greg Larsen. “But even with this investment there are no guarantees at the end that we’ll have those RJs serving us.”

Hagerstown knows there is plenty of room in the mid-Atlantic market for a fourth airport, given the congestion and hassle factor surrounding getting to BWI, DCA and IAD. Larsen indicated that the advent of the regional jet forced the changes since the field was great for turboprops, but not for most RJs. With two years of construction already done, the renovation is expected to be completed by the end of 2007.

The airport has had a lot of instability moving from service with USAirways Express Chautauqua to Shuttle America and now Piedmont. Service has gone from Saab 340 turboprops to the Beech 1900 since 9/11, all under the watchful eye of the local paper, which has speculated about the complete loss of service at the airport. Its five arrivals and departures have been reduced to three, further lowering the confidence of the passenger. This familiar cycle traditionally, and, still does, mean passengers are booking away from the airport, especially given the options they can find 1.5 hours away at BWI or IAD. Hagerstown also lost its connection to PIT when USAirways rationalized their hubs. “The business traveler no longer has any non stops,” said Larsen, adding, however, they like the free parking at the local airport and being closer to home at the end of their trip.

Hagerstown is coping by continually tightening its belt, said Larsen, who noted passenger traffic is now at a 15-year low at 10,000 passengers annually. In 1997 it was between 25,000 and 30,000, he said. All this alters tenant agreements, which are based on a certain traffic flow, with the consequent rental decreasing when it falls below that.

“We’ve been really affected by this erosion of traffic but people have to understand that in less than two years we will have to ability to accommodate aircraft that the airlines require to serve an airport like Hagerstown,” said Larsen. “The onus is on us to get the word out about the coming capabilities. We are part of the greater Baltimore/Washington area and we can deliver the market that is northwest of those markets. It is really Washington west and a lot more accessible than BWI. We are also very well connected by ground transportation. Even before 9/11 people were starting to migrate here.”

Larsen agreed with Courtney that it is a matter of fairness. “For years, communities have connected to the national air transportation system through hubs but now those spokes have fallen out of a great system,” he said. “We have to make people understand that there really is a need for networks and today, all the connectivity for small communities has been torn out of the system. I don’t know whether that has been by design or just by attrition. People just don’t understand how important that connectivity is.”